Fair competition or intentional interference?

It is the essence of the free market system for competing businesses to focus their efforts on obtaining a larger share of the market than their competition. In doing so, they are, by necessity, trying to interfere with the prospective economic advantage of other businesses.

California business owners should be aware that there is a point at which acceptable business competition ends and the actionable tort of intentional interference with prospective business advantage begins. Being unable or unwilling to recognize the difference could result in a business being ordered to pay a sizable jury award to its competitor.

At Fredrickson, Mazeika and Grant, LLP (FMG), we specialize in assisting our clients with evaluating competitor business practices when there is a concern that unfair advantage has been sought. This article discusses general areas of evaluation to evaluate and address such concerns.

Acts associated with intentional interference with prospective business advantage

As a general rule, competition between rival businesses is encouraged as benefiting the public with lower prices and better services. Fair competition is not actionable as a tort even though one of the competitors causes its rival to go out of business.

Beating a competitor by engaging in practices that give you an advantage is acceptable business practice provided a business owners does not engage in wrongful or improper acts. Wrongful acts might include any of the following:

Violating a state or federal law or regulation

Engaging in libel, slander, fraud or other common law wrongful conduct

Violating trade or professional standards or requirements, such as licensing and ethics codes

For example, a business proclaims its product to be superior to the product of a competitor might not be engaging in conduct that is actionable. However, releasing data falsely showing its product to be superior to that of another manufacturer would be engaging in wrongful conduct that could be actionable as an intentional interference with prospective business advantage.

Elements giving rise to a successful tort action against a competing business

The California Supreme Court has revisited the issue of intentional interference with prospective business advantage on many occasions. In Della Penna v. Toyota Motor Sales, U.S.A., Inc, 11 Cal. 4th 376 (1995), the court spent considerable time reviewing the long history of the tort action and the elements necessary to successfully prove that fair competition crossed the line into the realm of tortious behavior for which a plaintiff would be entitled to collect damages.

The elements of the tort of intentional interference with prospective business advantage involves the following elements:

Proof of the existence of an economic relationship between the injured party and another individual or entity and knowledge by the party committing the tort of the relationship

Wrongful and intentional acts designed to disrupt the relationship

Disruption of the relationship

Damages suffered by the injured party

The plaintiff in an intentional interference with prospective business advantage tort action must prove that were it not for the interference by the defendant, the plaintiff would have established a profitable business relationship with the third party. The potential business relationship must be one that is real and the evidence must be clear that it would have happen but for the intentional conduct of the defendant.

Defense to intentional interference with prospective business advantage

One of the key defenses to an action for damages based upon intentional interference with prospective business advantage is that the activities engaged in by the defendant were not wrongful. Engaging in activities designed to gain an advantage over the competition or to beat a rival to a prospective customer are within acceptable business practices. What courts are looking for in evaluating the conduct is for wrongful conduct that violates the law or accepted ethical standards.

Assessing the consequences and risks

Damages awarded in tort cases based upon intentional interference with prospective business advantage usually include the profits lost form the disruption of the business relationship. It can also include punitive damages. An experienced and knowledgeable attorney could be a good resource for advice and guidance when questions arise about business practices that could cross the line from fair competition to tortious conduct.

We would be pleased to consult with you on fair competition. Please contact FMG today so we can assist you with your questions.